Columbus Day Breather

Stocks are taking a breather from last week's runup, trending lower in what promises to be a quiet day. The bond market is closed for Columbus Day. The dollar is firmer and oil is lower this morning.

European markets are weaker and Asian stocks were mixed. South Korea closed 0.8% higher at another record, and Shanghai was up another 2.5%.

More Bang for the Buck?

The dollar is undervalued, warns the IMF's outgoing director Rodrigo Rato. Rato, in an interview with the Financial Times, joins a growing list of those voicing concern about the dollar's rise and the volatility in the currency markets.

Euro-Whining?

As they meet today, European Community finance ministers are expected to develop a position on the dollar ahead of the G7 later in the month. Jean-Claude Trichet, president of the European Central Bank, has made it clear there is concern about the euro's strength against the dollar. The weak dollar is good when Europeans shop for U.S. assets, but it's not proving so good when European companies look ahead at their earnings and worry about what Americans might stop buying with shrinking dollars.

Wall Street Cuts Itself

Analysts are hacking away at ratings and earnings for the financials today. J.P. Morgan cut estimates on Bank of America, saying trading and investment banking will impact its third quarter.

The Financial Times quoted Sanford Bernstein analyst Howard Mason saying that both J.P. Morgan and Bank of America will have to take losses on about $3 billion of mortgage securities and leveraged loans.

J.P. Morgan and Credit Suisse chopped Merrill Lynch to neutral today. The firm announced a $5.5 billion writedown Friday and the Wall Street Journal this weekend raised questions about oversight at the firm. Merrill analysts took the knife to UBS and Credit Suisse, downgrading them both to neutral. Credit Suisse though upgraded Lehman.

The FT also reports that investment banks are selling discounted collateralized loan obligations to get rid of the billions in assets that they got stuck on the shelf during market turbulence.

Back in Business

Private equity must smell a fire sale as it swarms crippled U.K. bank Northern Rock. Private equity has been quiet lately as the markets work out the summer's credit crunch. But both Apollo Management and Blackstone surfaced as interested bidders for Northern Rock, joining J.C. Flowers and Cerberus who have already had discussions with the bank, says the Wall Street Journal. Citigroup meanwhile is offering to lend money to buyers as it runs the bidding process.

The signs of a pickup in deal activity continue with SAP buying Business Objects for $6.8 billion.

UH-OH

A couple of cautious tales out this morning for stock investors. Bloomberg takes a look at action in the options market which shows big concern among investors about a stock market drop. Bloomberg cites data compiled by Morgan Stanley, which shows investors are now paying the biggest premium ever against a drop in the S&P 500 index, meaning the big demand for puts is pushing up the price.

The Wall Street Journal's Abreast of the Market column looks at all the mixed signals for stocks which could be taken as warning flags. That would include the weak dollar, rising gold, oil at $80 per barrel and the fact that the transports are lagging the rally in the Dow.

Driving Toward a Strike?

The United Auto Workers warned Chrysler management it could call a strike as early as tomorrow. The two sides began formal talks toward a contract over the weekend.